HM Revenue & Customs Commissioners v John Patrick Walsh

A regularly entered default judgment for tax debt will not be set aside under CPR 13.3 where the proposed defence seeks to reopen assessments which have become statutory debts after the taxpayer’s appeal rights have been exhausted. The statutory assessment and relief schemes exclude a common-law unjust-enrichment defence on the basis that the assessments are excessive.

Estimated assessments made because the taxpayer failed to provide information are not inherently arbitrary or disproportionate under A1P1. The statutory safeguards, including review, appeal and limited relief provisions, provide adequate protection. Delay after judgment, particularly where proceedings were stayed or consensually postponed, does not ordinarily provide a good reason to set aside the judgment. Charging orders may be enforced by sale, subject to balancing Article 8 rights where the property is the debtor’s home.

HMRC obtained a default judgment against the defendant for substantial tax liabilities and subsequently secured the judgment debt by charging orders over several properties. The defendant applied under CPR 13.2 and 13.3 to set aside or vary the default judgment, relying on alleged overstatement of the assessments, unjust enrichment, A1P1 and Article 6 rights, delay and abuse of process.

The defendant had unsuccessfully sought permission from the First-tier Tribunal to appeal the assessments out of time. The court therefore considered whether he had a real prospect of defending the underlying claim, whether there was another good reason to grant relief, whether he had acted promptly, and whether relief from sanctions was justified. HMRC also sought orders for sale of the charged properties, including the defendant’s home.

1. Application to set aside default judgment. The application was dismissed. The defendant had no real prospect of successfully defending the underlying claim and no other good reason was established under CPR 13.3.
2. Tax assessments and unjust enrichment. The remaining assessments and penalty determinations were statutory debts which could not be challenged in the enforcement proceedings after the statutory appeal process had been exhausted. The statutory relief provisions in Schedule 1AB to the Taxes Management Act 1970 formed a further bar to the proposed restitutionary claim. The defendant had not made a claim under that scheme and could not satisfy condition B. The reasoning in Woolwich, Loebler, Pearlberg, Harris, Lindum and Wallace did not provide a route around the statutory scheme.
3. A1P1. Where a taxpayer fails to provide information, HMRC may necessarily assess by reference to available information and judgment. That process was foreseeable, lawful and proportionate. The safeguards included the judgment required in making the assessment, review and appeal rights, possible extensions of time and statutory relief. The assessments therefore did not give rise to a viable A1P1 defence.
4. Delay, abuse and promptness. The underlying claim was issued and judgment entered within 45 days. Later delay was not relevant to the fairness of the trial of the underlying claim, particularly where the defendant had sought a stay and agreed postponements. The defendant had also failed to apply promptly, waiting about three months after learning of the claim. His communication difficulties, bereavement and later ill-health did not constitute good reasons or justify relief under the three-stage Denton test.
5. Enforcement. Orders for sale were made in respect of the charged properties other than the defendant’s home. The claim concerning the home was adjourned for one year, allowing the other properties to be sold first and postponing the need to balance the defendant’s Article 8 rights against HMRC’s enforcement rights.

First-instance decision. The judgment records that the defendant’s application to the First-tier Tribunal for permission to appeal the tax assessments out of time was refused on 29 August 2018, save for limited assessments or penalties withdrawn or accepted by HMRC.